Opinion
3:98-CV-2903-M.
July 17, 2003.
MEMORANDUM ORDER AND OPINION
Before the Court is Ericsson's Motion for Judgment as a Matter of Law, filed October 25, 2002, and its Supplemental Brief in Support of its Motion for Judgment as a Matter of Law; Ericsson's Motion for New Trial, filed December 3, 2002; and Harris's Motion for Enhanced Damages, Attorneys' Fees, and Prejudgment Interest, filed November 27, 2002.
I. MOTION FOR JUDGMENT AS A MATTER OF LAW
Ericsson moves on numerous grounds for the Court to hold that the evidence is insufficient to support the jury's verdict. After considering the positions of the parties, the evidence in the record, and the relevant authorities, the Court holds that the jury's verdict is supported by the evidence in all respects, except as to the amount of damages as explained below. Ericsson's Motion for Judgment as a Matter of Law is therefore denied.
II. ERICSSON'S MOTION FOR NEW TRIAL OR REMITTITUR
Ericsson contends that the Court should order a new trial because the jury's damages award is against the great weight of the evidence, and, in the alternative, that the Court should grant a remittitur.
Ericsson moves for a new trial on the grounds that the damages award is not supported by the evidence, that Harris improperly changed its damages theory at trial, and that the damages verdict resulted from passion or prejudice. If the Court determines that the verdict resulted from passion or prejudice, the Court must grant a new trial. If the Court determines that the evidence does not support the damages award, but that the verdict did not result from passion or prejudice, the Court may either grant a new trial or grant the Plaintiff an option of a new trial or a remittitur to a specific amount.
A. Is the Damages Award Against the Great Weight of the Evidence?Standard of Review. "When a party files a motion . . . to grant a new trial on the amount of damages awarded by a jury, `the trial court determines whether the jury's verdict is against the clear or great weight of the evidence.'" It is within a district court's discretion to grant a new trial because of an excessive damages award, and that decision is reviewed on appeal under an abuse of discretion standard. The determination of the amount of damages based on a reasonable royalty is an issue of fact. A court may not substitute its own judgment on this issue of damages for the findings of the jury. A court has two options if it finds that a jury damages award is excessive. It may order a new trial or grant a new trial conditional on the plaintiff's refusal to accept a remittitur. Reasonable Royalty. Harris sought damages measured by a reasonable royalty. A patentee who has proved infringement is entitled to "damages adequate to compensate for the infringement, but in no event less than a reasonable royalty for the use made of the invention by the infringer." This calculation of damages is based upon a hypothetical negotiation between the patentee and the infringer at the time infringement began. Thus, "[a] reasonable royalty determination . . . must relate to the time infringement occurred, and not be an after-the-fact assessment." "Although this analysis necessarily involves some approximation and uncertainty, a trier of fact must have some factual basis for determination of a reasonable royalty. Any rate determined by the trier of fact must be supported by relevant evidence in the record."
Unisplay v. American Electronic Sign Co., Inc., 69 F.3d 512, 517 (Fed. Cir. 1995) (quoting Standard Havens Prods. v. Gencor Indus., 953 F.2d 1360, 1367 (Fed. Cir. 1991)). Accord, Oiness v. Walgreen Co., 88 F.3d 1025, 1028 (Fed. Cir. 1996).
Oiness, 88 F.3d at 1029; Unisplay, 69 F.3d at 517.
Oiness, 88 F.3d at 1029.
Unisplay, 69 F.3d at 517.
Oiness, 88 F.3d at 1030.
35 U.S.C. § 284.
Unisplay, 69 F.3d at 517.
Id. at 518.
Id. at 517.
The jury returned a damages verdict in the amount of $61.25 million, which corresponds to a 1.75 % royalty rate applied to a $3.5 billion royalty base. Ericsson contends that there is no evidence in the record that supports a 1.75 % royalty rate, and that the evidence only supports a rate of 0.5 %.
What evidence is relevant to the reasonable royalty determination? Before examining whether the evidence presented at trial supports the jury's damages verdict, the Court must resolve a dispute between the parties on a matter of law. The parties agree that the statutory damages period in this case is from August 17, 1998 (the date the lawsuit was filed and the date on which the parties agree Ericsson had notice of infringement) to June 27, 2000 (the date the patent expired). There is no dispute that the date of first infringement is January 1, 1992, and there is no dispute that the law requires the reasonable royalty rate to be set by imagining a hypothetical negotiation on the date when the infringement began. The legal question the Court must resolve is whether evidence of events or circumstances existing after the date of first infringement, which is also the date of the hypothetical negotiation, is relevant to the determination of a reasonable royalty rate.
The dispute centers around evidence presented by Harris's damages expert, Walter Bratic. Bratic testified that the January 1, 1992 hypothetical negotiation would have resulted in a royalty rate that the parties would have renegotiated and reduced five years later. Harris contends that this portion of its own damages expert's testimony is irrelevant to the damages determination in this case.
Harris cites Wang Laboratories, Inc. v. Toshiba Corp., for its argument that evidence of the rate arrived at during the original hypothetical negotiation on January 1, 1992 is the only evidence relevant to the damages determination. In Wang, the jury determined two royalty rates, one assuming the hypothetical negotiation occurred on the date infringement began, and another assuming the negotiation occurred on the date Wang gave notice of infringement. In entering judgment, the district court held that the date for the hypothetical negotiation was the later date, when the defendant had notice of infringement, rather than the date infringement began. Wang moved to amend the judgment, to use the royalty rate the parties would have agreed upon on the date of first infringement, but the district court denied the motion.
993 F.2d 858 (Fed. Cir. 1993).
The Federal Circuit reversed, holding that the district court abused its discretion by using the notice date for determining the royalty rate. The court cited its precedent in concluding that "[t]he key element in setting a reasonable royalty . . . is the necessity for returning to the date when the infringement began." In Wang, since infringement began on the date the patent issued, the court held that "hypothetical royalty negotiations should have been considered to have occurred on the patent issuance date," not on the date the infringer had notice of infringement.
Wang, 993 F.2d at 870 (quoting Hanson v. Alpine Valley Ski Area, Inc., 718 F.2d 1075 (Fed. Cir. 1983)).
Id.
Ericsson agrees that the jury should have considered the hypothetical negotiation to have occurred on the date that infringement began. However, Ericsson contends that the decision in Wang does not prevent consideration of evidence of events that would have occurred after the hypothetical negotiation. The Court agrees.
The Wang court reviewed the facts in Fromson v. Western Litho Plate and Supply Co., "in which the hypothetical negotiations were determined to have occurred when the infringement began, which was the date the patent issued, even though, under 35 U.S.C. § 286, the infringer was only liable for damages for the six years prior to the filing of the infringement action." While the Fromson court recognized that the royalty rate is to be determined by imagining a hypothetical negotiation at the time of initial infringement, it also held that the fact finder may consider evidence of events following the initial infringement:
853 F.2d 1568 (Fed. Cir. 1988).
Wang, 993 F.2d at 870.
The methodology [for determining a royalty rate through a hypothetical negotiation] encompasses fantasy and flexibility; fantasy because it requires a court to imagine what warring parties would have agreed to as willing negotiators; flexibility because it speaks of negotiations as of the time infringement began, yet permits and often requires a court to look to events and facts that occurred thereafter and that could not have been known to or predicted by the hypothesized negotiators.
Fromson, 853 F.2d at 1575.
Thus, the Federal Circuit has held that, while a hypothetical negotiation is deemed to have occurred on the date of first infringement, the reasonable royalty calculation necessitates consideration of "elements of value non-existent at the time of [first infringement]," for to do so "is to bring out and expose to light the elements of value that were there from the beginning." In Fromson, the Federal Circuit held that it would be appropriate for the district court on remand to consider the infringer's actual profits in its damages determination.
Id. (quoting Sinclair Ref. Co. v. Jenkins Petroleum Co., 289 U.S. 689, 698-99 (1933)).
Id. at 1578.
The Federal Circuit applied the principle of Fromson in Studiengesellschaft Kohle, m.b.H. v. Dart Indus., Inc. In Dart, the district court reviewed a special master's recommendation on damages after the master conducted an accounting trial in a patent suit. In litigation prior to Dart, the Dart plaintiff brought claims against Phillips Petroleum, which had previously infringed the same patent at issue in Dart. The plaintiff settled its claims against Phillips after the court determined the patent valid and infringed. The special master in Dart concluded that the Phillips settlement was relevant to the reasonable royalty the Dart parties would have agreed upon, but he ignored it when calculating the royalty. The district court held that it was error for the special master to fail to consider the Phillips settlement, even though the settlement was reached after the date of first infringement applicable in the Dart case. The district court therefore revised the damages award accordingly.
862 F.2d 1564 (Fed. Cir. 1988).
Id. at 1571.
On appeal, the plaintiff argued that it was improper for the district court to consider the settlement agreement because it would not have been known to the Dart parties on the date of first infringement. However, the Federal Circuit, citing its opinion in Fromson, affirmed the district court's consideration of the settlement.
Id. at 1572-73.
Thus, the Court holds that a full reading of Wang, Fromson, and Dart precludes Harris's argument that events transpiring after the hypothetical negotiation are irrelevant to the damages determination. Harris's damages expert testified that, at the hypothetical negotiation on January 1, 1992 (" original hypothetical negotiation"), the parties would have agreed to a five year patent license that would be renegotiated at the end of its term on January 1, 1997 (" hypothetical renegotiation"). He also testified that the circumstances that existed five years after the original hypothetical negotiation indicate that the parties would have agreed to reduce the rate originally set. The Court holds that both the testimony about the rate set at the original hypothetical negotiation and the testimony about the rate set at the hypothetical renegotiation were relevant to the jury's determination of damages.
Is the jury's damages verdict excessive in light of the relevant evidence? The Court now must decide whether the jury's damages verdict of $61.25 million is against the great weight of the evidence. This verdict corresponds with a 1.75% royalty rate applied to a $3.5 billion royalty base. Harris contends that the jury's damages determination, and its use of the 1.75% rate, is supported by the testimony of its damages expert, Bratic; the testimony of Harris's former employee and patent license negotiator, Ed Andre ("Andre"); and evidence of a 1992 Motorola-Ericsson license agreement. Ericsson contends that this evidence is insufficient to support the jury's damages verdict. Ericsson also contends that Harris's advocacy of a $61.25 million damages verdict constituted a prejudicial shift in its damages theory at the time of trial.
The royalty base is Ericsson's sales of infringing products during the statutory damages period. Harris's damages expert testified that the royalty base is $3.5 billion, and Ericsson's expert testified that the royalty base is $3.1 billion. However, Ericsson does not argue that the $3.5 billion figure lacked support in the evidence. Thus, the Court refers to the $3.5 billion figure throughout this opinion.
During opening arguments, counsel for Harris stated that:
We have calculated a reasonable royalty on [Ericsson's] sales at the rate of one-half of one percent. So just to put that in context, for every dollar Ericsson earned, we're asking for one-half of a penny. The total amount is 17 and a half million dollars. And we believe that's the minimum amount which you [the jury] should consider, because the statute says not less than a reasonable royalty.
Tr. Vol. 1B at 43.
On the first day of his testimony, Harris's damages expert, Bratic, stated that his opinion of a reasonable royalty rate was $17.5 million. Bratic testified that a reasonable royalty rate is to be derived by imagining a hypothetical negotiation on January 1, 1992, the date of first infringement. However, he also testified that both of the parties' licensing practices indicate that, at the original hypothetical negotiation, the parties would have agreed only to a five year patent license. He stated that the parties would have renegotiated the rate five years after the original hypothetical negotiation. Bratic concluded his first day of testimony by confirming on direct examination that 0.5% was his opinion of a reasonable royalty in this case.
Tr. Vol. 5B at 109.
Id. at 134.
On the second day of his testimony, Bratic again testified about the original hypothetical negotiation and the hypothetical renegotiation. Bratic's testimony was that, at the original hypothetical negotiation in 1992, the parties would have agreed to a 1.75% rate and to renegotiate that rate in five years. He then testified that, at the hypothetical renegotiation in 1997, the parties would have agreed to a 0.5% rate, and he stated that this rate was his opinion of a reasonable royalty rate. He then confirmed numerous times, on direct and cross examination, his opinion that 0.5% was the reasonable royalty rate and/or that $17.5 million was the reasonable royalty that he determined should be applied in this case. In contrast, in closing, Harris argued that "$61,250,000 is the damages you [the jury] should award in this case . . .," and that is what the jury did.
Tr. Vol. 6A at 8, 11, 17, 18, 19, 24, 26,27, 28, 29, 103.
Tr. Vol. 13 at 197.
Harris downplays Bratic's testimony about the 0.5% rate and argues that he gave such testimony merely to maintain consistency with his original expert report. This characterization of Bratic's testimony is disingenuous. Harris's counsel cited the 0.5% rate and the $17.5 million figure in his opening statement. During his testimony, Bratic did not merely give lip service to the 0.5% rate discussed in his expert reports. Instead, throughout his lengthy testimony, Bratic consistently maintained his opinion about the 0.5% rate.
Harris also argues that Bratic's testimony about the 0.5% rate became moot when Ericsson's expert testified that the date for the hypothetical negotiation was the date of first infringement. While his testimony was correct, the Court views the Federal Circuit precedent discussed above to state that circumstances existing after the date of the hypothetical negotiation may be relevant to the determination of a reasonable royalty. The Fromson court noted that the methodology for determining a rate that the parties would have agreed upon at a hypothetical negotiation on the date of first infringement "often requires a court to look to events and facts that occurred thereafter and that could not have been known to or predicted by the hypothesized negotiators." The Court holds that this is such a case.
Just as Bratic did, Ericsson's damages expert, Roger Carlile, testified that hypothetical negotiations occur on the date of first infringement. However, unlike Bratic, Carlile opined that the parties would have agreed to a flat rate of 0.0584% on the date of first infringement.
Fromson, 853 F.2d at 1575.
Bratic testified that within five years of the original hypothetical negotiation the parties would have reduced the original royalty rate from 1.75% to 0.5%. Such evidence is highly relevant to the determination of a reasonable royalty, which is intended to compensate "the injured patentee [by putting it] `in the situation [it] would have occupied if the wrong had not been committed.'" In rendering its $61.25 million verdict, the jury disregarded the gravamen of Bratic's testimony, that the parties knew on the date of first infringement that they would renegotiate the 1.75% royalty rate in five years. Bratic did not testify that the parties would have agreed at the original hypothetical negotiation to a running royalty rate of 1.75%. No such conclusion could be drawn from his testimony. His testimony was clear that the parties would have agreed, at the original hypothetical negotiation, to renegotiate the rate in five years and that the rate would have been significantly reduced at the hypothetical renegotiation.
Id. (quoting 35 U.S.C. § 284).
Bratic testified that the parties would have agreed at the original hypothetical negotiation to a five year license at a 1.75% rate. However, he never testified that in his opinion $61.25 million was a reasonable royalty in this case or that the parties would have agreed to a 1.75% rate over the life of the license. Instead, Bratic merely explained that if a 1.75% rate was used in the equation he had used to determine the damages, the damages would be about $61 million.
Tr. Vol. 5B at 130; Tr. Vol. 6A at 10, 51, and 52.
Indeed, the Court holds there was no other evidence presented at trial that would support a 1.75% running royalty rate, which is what the jury effectively calculated the rate to be. Harris contends that, in addition to Bratic's testimony, which cannot support the verdict, the testimony of Ed Andre and evidence of a 1992 license between Motorola and Ericsson ("1992 Motorola license") supports the jury's damages verdict.
Andre testified that, before he left Harris in 1995, Harris's targeted rate for patent licenses was 1.75%. He explained that the 1.75% rate assumed a cross-license, which typically reduces a rate, but which in this case would not have been given for the `338 patent. Andre's testimony about the 1.75% rate was not directed to what the parties would have agreed upon in negotiating a license for the `338 patent. Because Andre did not testify that the parties might have agreed to Harris's target rate in a hypothetical negotiation involving the `338 patent, and no such evidence was presented at trial, this portion of Andre's testimony cannot support the damages verdict.
Tr. Vol. 5A at 124, 137; Tr. Vol. 5B at 8.
Id. at 130.
Unisplay, 69 F.3d at 518-519 (finding testimony and evidence irrelevant because it was not directed to what the parties would have actually agreed upon at the time of first infringement).
Andre also testified about royalty rates for patents involving technology that enables a licensee to conform to various cellular industry standards in the United States. Andre testified that a patent has value if competitors in the industry need the technology of that patent in order to conform to the industry standards. He also testified that rates for such patents in the cell phone technology business are anywhere from 4% to 4.5% and that 0.5% would be an "extremely, very, very low rate." The relevance of this testimony is dependent on whether there was evidence in the record that Ericsson needed to obtain a license for the `338 patent in order to conform to the cellular industry standards. Andre provided no such testimony, and as the Court explains below, no such evidence was presented at trial.
Tr. Vol. 5A at 140-141.
The relevance of the 1992 Motorola license is also dependent on evidence that Ericsson needed the technology which is the subject of the `338 patent in order to conform its products to the industry standards. As Harris recognizes, "the rates paid by the licensee for the use of other patents comparable to the patent in suit" are relevant to the determination of a reasonable royalty. Harris argues the evidence shows that the patents in the 1992 Motorola license are comparable to the `338 patent because Ericsson needed to license both patents in order to practice certain cellular industry standards. Ericsson argues that no evidence for such a proposition was presented at trial. Harris offered evidence only that Ericsson's products conform to the industry standards and that Ericsson's products infringed the `338 patent. Although Bratic stated that Ericsson needed the `338 patent to conform to industry standards, he testified on cross examination that he had no personal knowledge of that fact. Harris's failure to provide evidence that the `338 patent was necessary for Ericsson to conform to cellular industry standards leads the Court to the conclusion that neither evidence of the 1992 Motorola license, nor Andre's testimony about industry standards, can be used to support a 1.75% royalty rate in this case.
Georgia-Pacific Corp. v. United States Plywood Corp., 318 F. Supp. 1116, 1120 (S.D. N.Y. 1970) (emphasis added).
Thus, the Court determines that no evidence in the record supports the jury's damages verdict. The $61.25 million verdict is excessive in light of the relevant evidence, even that of the plaintiff's own damages expert who testified that the parties would have agreed at the hypothetical negotiation only to a five year patent license at a 1.75% rate and thereafter at a 0.5% rate.
Furthermore, the Court agrees with Ericsson that Harris's argument for a $61.25 million damages verdict constitutes a shift in its damages theory, which unfairly prejudiced Ericsson. Ericsson cites IPPV Enterprises, LLC v. Echostar Communications Corp., for the proposition that a party who shifts its damages theory at the time of trial may prejudice the opposing party and cause an excessive damages verdict. In IPPV Enterprises, the plaintiff disclosed prior to trial that its damages theory, to be presented at trial by its expert, was that $7,944,000 was a reasonable royalty. At trial, the plaintiff elicited testimony from its expert, stating that $7,944,000 was a conservative, low estimate of the damages, and the plaintiff urged the jury to award $22.5 million. The Court found that the evidence at trial did not support the $22.5 million figure or the $15 million damages award.
The Court does not consider the prejudice to Ericsson to require the Court to grant a new trial, without offering Harris the option of a remittitur.
191 F. Supp.2d 530, 568-72 (Del. 2002).
The defendant's product involved satellite television services. At trial, the plaintiff's expert also testified that the royalty rate could be calculated on a per-satellite box basis, an opinion the expert had expressly disclaimed in his report.
Bratic submitted his original expert report on April 30, 2000. In that report, Bratic discussed the issue of damages with regard to three patents, in addition to the `338 patent. The other three patents are no longer at issue in this case because the claims based on them have been nonsuited or were the subject of a summary judgment against Harris. Bratic's 2000 report determined the reasonable royalty rate for a hypothetical license that would have included those three other patents, in addition to the `338 patent. That report also assumed that the statutory damages period was much lengthier than the statutory damages period the parties have since agreed is proper for the `338 patent. Bratic opined that there would be three hypothetical negotiations between the parties in 1987, 1992, and 1997. The first of those would not have involved the `338 patent. Bratic stated his opinion that the royalty rate would have been 1.75% at the 1992 hypothetical negotiation and 0.5% at the 1997 hypothetical negotiation.
Pla.'s Ex. 69 at 39.
On August 6, 2002, Bratic supplemented his original report, updating his conclusions based on changes in the case. Although at that point two patents remained at issue, the supplement discusses the possibility that only one patent would be at issue during the trial:
In my initial expert report, I determined that a reasonable royalty rate of 0.5% of accused product sales would result from a January 1997 hypothetical negotiation date with respect to the four original patents at issue in this litigation. . . . [I]n the event that only one of the [p]atents-in-suit remains at issue in this litigation, it is . . . my opinion [that] the 0.5% royalty rate would remain unchanged.
Pla.'s Ex. 70.
Additionally, Bratic stated that "if only the `338 [p]atent were at issue in this litigation, I conclude that Harris is due a reasonable royalty for Ericsson's infringement of at least $17.5 million for the period from August 17, 1998 through June 27, 2000." The supplemental report does not mention a 1.75% rate or an opinion that $61.25 million is a reasonable royalty in this case.
Id.
Although the Court recognizes that certain facts distinguish IPPV Enterprises from this case, the Court has determined that Harris's advocacy of a $61.25 million verdict was a prejudicial shift in its damages theory that was unsupported by the record or Bratic's reports. At trial and in his original expert report, Bratic opined that the parties would have agreed to a 1.75% rate only for five years following the 1992 hypothetical negotiation. Bratic's most recent expert report mentioned only the 0.5% rate, and confirmed that $17.5 million was his opinion of a reasonable royalty. Harris argued that the jury should award an amount that reflects that the parties would have agreed to a 1.75% running royalty rate on the date of first infringement. Neither of Bratic's reports, on which Ericsson was entitled to rely, nor his testimony at trial, support such an argument. Harris's counsel, therefore, put before the jury an improper argument that may have contributed to the excessiveness of the jury's verdict.
For example, in IPPV Enterprises, the plaintiff stated in the pre-trial order a specific amount of damages it sought, but the plaintiff argued at trial that the jury should award damages exceeding that amount. IPPV Enterprises, 191 F. Supp.2d at 569. As Harris notes, it did not limit in the Pre-trial Order the amount of damages it would seek at trial.
What should the Court do in light of its ruling that the damages award was excessive? If a court determines that an excessive damages award should not stand, a court has discretion to grant a remittitur. However, because a court may not supplant its own judgment on the damages amount for that of the jury, a court must give the plaintiff the option of agreeing to the remitted damages amount or having the court grant a new trial. The Court has determined that the jury's award is excessive, and the Court grants the Motion for New Trial, conditional on Harris's refusal of a remitted damages amount.
In calculating the remitted damages amount, the Federal Circuit has held that the Court must follow the "`maximum recovery rule' which requires [a] court to remit the damages award to the highest amount the jury could properly have awarded based on the relevant evidence." The highest damages figure for which there was explicit expert testimony that could be supported by the evidence is $17.5 million, representing a 0.5% rate applied to the $3.5 billion royalty base. However, the Federal Circuit has held that a jury is not bound to a damages figure advanced by one of the parties if the record evidence supports a different figure.
Unisplay, 69 F.3d at 519.
Bratic testified that the $3.5 billion figure represents Ericsson's sales of infringing products during the statutory damages period. Tr. Vol. 5B at 133.
Unisplay, 69 F.3d at 519 (refusing to "hold that a jury may only arrive at a royalty specifically articulated by the parties during trial" and explaining that "a jury's choice simply must be within the range encompassed by the record as a whole.") (citing SmithKline, 926 F.2d at 1168, which held "A court is not restricted in finding a reasonable royalty to a specific figure put forth by one of the parties.").
The Court has held that Bratic's testimony and the other evidence in the record cannot support the application of a 1.75% running royalty. However, the Court does not hold that the 1.75% figure was irrelevant to the jury's determination. Bratic's testimony that the parties would have agreed on the date of first infringement to a five year license at a 1.75% rate is relevant to the calculation of a reasonable royalty. The Court has also held that Bratic's testimony of the 0.5% rate was relevant to the jury's determination.
The problem is that there was no articulated testimony or evidence at trial of a single, effective rate, which would have applied to the patent license from the date of first infringement until the date the patent expired, and which took into consideration Bratic's testimony on the 1.75% and 0.5% rates. However, this problem is solved, and could have been solved by the jury without the aid of expert testimony, by applying basic mathematics to the evidence.
Bratic's testimony was that the 1.75% rate would have applied for five years, from January 1, 1992 through December 31, 1996, and that the 0.5% rate would have applied from January 1, 1997 to June 27, 2000, the day the patent expired. Thus, the jury could have concluded that the 1.75% rate would have applied for 1,826 days and that the 0.5% rate would have applied for 1,274 days. By adding these two figures, the jury could have also determined that the total number of days the hypothetical license would have been in effect is 3,100 days. Thus, the effective rate of the hypothetical license, which would have been in effect from the date of first infringement to the day the patent expired, could have been determined by weighting the two percentages across the 3100 days the license would have been in effect, as follows:
The 1,826 figure is determined by multiplying 5 years (1992 — 1996) by 365 days per year and then adding one day to that figure because there was a leap year during that five year period.
The 1,274 figure is determined by multiplying 3 years (1997 — 1999) by 365 days per year; adding 178 days for part of the year 2000 (January 1, 2000 — June 27, 2000); and then adding one day to that figure because there was a leap year during that three and a half year period.
1826 days at 1.75% = 3195.50
1274 days at 0.5% = + 637
3832.50
3832.50 / 3100 = 1.23629. . . .%
Thus, the jury could have determined that 1.23629% would have been the effective rate for the life of the hypothetical license. Then, the jurors could have properly applied 1.23629% to the royalty base of $3.5 billion and determined the damages to be $43,270,150.00.
While the Court found that Harris' advocacy of the $61.25 million damages award constituted a prejudicial shift in Harris's damages theory, the Court would not have considered it prejudicial to Ericsson if Harris had advocated a damages amount based on an effective royalty that would have accounted for Bratic's testimony about the 1.75% rate and the 0.5% rate. Although Bratic's 2002 supplemental expert report did not mention the 1.75% rate, his original expert report did discuss that rate, as the Court has explained above. Thus, Ericsson had sufficient notice, based on Bratic's expert reports and deposition testimony, that he might testify at trial that the 1.75% rate would have applied during the first five years of the hypothetical license.
Because the Federal Circuit requires this Court to remit the damages award to the highest amount the jury could have properly awarded, not to what this Court would have awarded if it had been the fact finder and not to the highest figure about which an expert testified, the Court must remit the damages award to $43,270,150.00. Should Harris refuse to accept the reduction of the award to that sum, the Court will hold a new trial on the issue of damages. Thus, the Court GRANTS Ericsson's Motion for New Trial unless, within thirty days of the entry of this Order, Harris files a statement accepting a remittitur of the damages to the amount of $46,714,500.00.
B. Did the Verdict Result from Passion or Prejudice?
A trial court must grant a new trial if it finds that the damages verdict resulted from passion or prejudice. Ericsson contends that comments by Harris's counsel during interim and closing arguments that referenced a community standard suggest the jury award resulted from passion or prejudice. Ericsson argues that counsel for Harris improperly invoked the conscience of the community, by making various references to Ericsson as a foreigner and by making remarks to the jury such as, "You're the conscience of this community . . . you're the only ones that can make a difference. You're the only ones that can send a message to tell large corporations that that's over the top."
Polanco v. City of Austin, 78 F.3d 968, 981 (5th Cir. 1996).
Ericsson also made an argument that the size of the verdict alone indicates that the jury's verdict was influenced by passion or prejudice. Ericsson cites two Fifth Circuit cases in which the court found that the award was "so exaggerated as to indicate bias, passion, prejudice, corruption, or other improper motive [that] remittitur [was] inadequate and the only proper remedy was a new trial." Wells v. Dallas Independant School Dist., 793 F.2d 679, 683-34 (5th Cir. 1986). Accord, Auster Oil Gas, Inc. v. Stream, 835 F.2d 597, 603 (5th Cir. 1988). The Court does not find those circumstances exist here.
Tr. Vol. 13 at 197-98.
In Westbrook v. General Tire and Rubber Co., the Fifth Circuit held that "[w]hen a closing argument is challenged for impropriety or error, the entire argument should be reviewed within the context of the court's ruling on objections, the jury charge, and any corrective measures applied by the trial court."
754 F.2d 1233 (5th Cir. 1985).
Id. at 1238.
Here, the Court instructed the jury, both in the preliminary instructions and in the final jury charge, that the argument of counsel is not evidence. Additionally, Ericsson never objected to the statements made by Harris's counsel. The Court does not find that counsel for Harris's "invocation of the conscience of the community . . . so exceeded the limits of advocacy as to cause a prejudicial verdict." The Court therefore denies Ericsson's Motion for New Trial on these grounds.
Id.
III. MOTION FOR ENHANCED DAMAGES AND ATTORNEYS' FEES
A trial court has discretion under 35 U.S.C. § 284 to "increase the damages up to three times the amount found or assessed" upon a finding of infringement. Under 35 U.S.C. § 285, "the court in exceptional cases may award reasonable attorney fees to the prevailing party."
A. Enhancement of Damages
The Federal Circuit has interpreted 35 U.S.C. § 284 to require two steps. "First, the fact-finder must determine whether an infringer is guilty of conduct upon which increased damages may be based. If so, the court then determines, exercising its sound discretion, whether, and to what extent, to increase the damages award given the totality of the circumstances." A jury's finding of willfulness may serve as the predicate for a district court to enhance the damages award. "However, a finding of willful infringement does not mandate that damages be increased or that attorneys fees be awarded." In the event a court determines not to enhance the damages award despite the jury's finding of willfulness, generally the court "should provide reasons for not increasing a damages award or for not finding a case exceptional for the purpose of awarding attorneys fees."
Jurgens v. CBK, Ltd., 80 F.3d 1566, 1570 (Fed. Cir. 1996).
Johns Hopkins Univ. v. CellPro, Inc., 152 F.3d 1342, 1364 (Fed. Cir. 1998).
Jurgens, 80 F.3d at 1573.
Id. at 1572; but see Carroll Touch, Inc. v. Electo Mechanical Sys., Inc., 15 F.3d 1573, 1584 (Fed. Cir. 1993) (where the record provides a sufficient basis for reviewing the court's determination, express findings are not necessary).
In Jurgens v. CBK, Ltd., the trial court did not award enhanced damages after the jury's finding of willful infringement, in part because the defendants obtained an opinion of counsel. The Federal Circuit stated:
Considering the detailed jury instruction, which included the elements of willful infringement, the defenses to it, and an additional requirement that CBK acted in bad faith, the only way the jury could have reached the decision that CBK's conduct was willful was to reject its contention that it relied in good faith on the opinion of counsel. . . . In returning its verdict of willfulness, the jury necessarily decided that CBK had acted in bad faith, thus rejecting its defenses to willful infringement.
Because the jury had rejected CBK's assertion that it acted in good faith as a matter of fact, the court did not have discretion to reweigh the evidence about the competency of the opinion or CBK's reliance on it. Although a trial court many times has discretion to weigh the closeness of the case and the scope of the infringer's investigation in deciding whether to increase a damages award, it does not have discretion to reweigh this evidence once the matter has been decided by the jury and the court finds evidence sufficient to support a jury determination.
Id.
The Federal Circuit held that the court's evaluation of the competency of the opinion letter was inadequate because the court evaluated only the qualifications of the author and failed to assess the content of the opinion. Thus, the Federal Circuit remanded the case in order for the district court to exercise its discretion over the damages award, but noted that the court must "not include alleged conduct or actions that the jury ha[d] expressly rejected as a factual matter or matters that are not relevant to the increased damages or attorney fees issues." Jurgens precludes a district court, after a jury has found willfulness on the basis of clear and convincing evidence, from deciding not to enhance the damages award by second guessing the jury's finding of bad faith. However, Jurgens does not preclude a district court from making such a determination on other grounds. In Transclean Corp. v. Bridgewood Services, Inc., the jury made a finding of willful infringement, but the Federal Circuit upheld the trial court's decision not to enhance the damages award. The court held that the jury's finding of willfulness satisfied the first step in the two-step process for enhancement of damages under 35 U.S.C. § 284 and that the finding served as only one of several factors the trial court may consider in performing the second step. The circuit court cited its opinion in Read Corp. v. Portec, Inc. for its recitation of factors relevant to the district court's enhancement analysis. Those factors include "(1) deliberate copying; (2) infringer's investigation and good-faith belief of invalidity or non-infringement; (3) litigation conduct; (4) infringer's size and financial condition; (5) closeness of the case; (6) duration of the misconduct; (7) remedial action by the infringer; (8) infringer's motivation for harm; and (9) concealment."
Id. at 1573.
290 F.3d 1364 (Fed. Cir. 2002).
Id. at 1377.
970 F.2d 816 (Fed. Cir. 1992).
Transclean, 290 F.3d at 1377-78.
In this case, the Court has sustained the jury's finding of willfulness. Thus, the Court reads Jurgens as disallowing it to weigh the evidence applicable to the second factor, as the jury has found that Ericsson acted in bad faith. However, the Court interprets Transclean to allow it to weigh the evidence as to the other Read factors in determining whether enhancement is appropriate.
The Court determines that, if Harris agrees to the remitted damages award, the damages award should be enhanced in the amount of $1,000,000.00 based on the Court's consideration of all of the appropriate Read factors, and in particular, the jury's finding of willfulness; the lack of evidence of deliberate copying; the short duration of Ericsson's misconduct; and Ericsson's lack of motivation for harming Harris, a non-competitor. If there is a new trial, the Court will redetermine whether to enhance damages after the jury reaches its verdict on the issue of damages.
B. Attorneys' Fees
The Court must next find whether this case is exceptional under 35 U.S.C. § 285, and then determine what amount of attorneys' fees, if any, is appropriate in light of the Court's finding. The "types of conduct which can form a basis for finding a case exceptional [include] willful infringement . . . misconduct during litigation, [and] vexatious or unjustified litigation. . . ." These factors are similar to those the Court considered in its enhanced damages analysis.
Beckman Instruments, Inc. v. LKB Produkter AB, 892 F.2d 1547, 1551 (Fed. Cir. 1989).
See also, S.C. Johnson Son, Inc. v. Carter-Wallace, Inc., 781 F.2d 198, 201 (Fed. Cir. 1986) (the trial court may consider many factors in determining whether to award attorneys' fees, including a finding of willful infringement, "the closeness of the case, the tactics of counsel, the conduct of the parties").
Here, Harris seeks attorneys' fees from September 14, 2002 to the present, the period in which the `338 patent was the only patent remaining in the litigation. The jury found that Ericsson willfully infringed that patent. While the Court does not find that Ericsson's litigation conduct was vexatious or unjustified as Harris advocates, the jury's finding of willful infringement is a sufficient basis to find this case an exceptional one under 35 U.S.C. § 285.
Modine Mfg. Co. v. Allen Group Inc., 917 F.2d 538, 543 (Fed. Cir. 1990).
The Court finds that Harris's requested fees represent an appropriate award, given that the requested fees are limited to the period in which the `338 patent, the only patent before the jury, remained as the only patent at issue in the case. Harris prevailed on all of its claims as to the `338 patent asserted at trial, including its claim for willful infringement. Thus, the Court finds that an award of attorneys' fees in the amount of $1,034,930.30 is appropriate and that this amount requested by Harris is reasonable. If Harris elects to accept the remitted damages award, the Court will award attorneys' fees in that amount; if there is a new trial, the Court will redetermine whether to award attorneys' fees after that trial.
IV. MOTION FOR PREJUDGMENT INTEREST
If Harris decides to accept the remitted damages award, the Court finds that Harris is entitled to prejudgment interest on the $43,270,150.00 amount, at the United States Treasury bill rate, compounded annually, from August 17, 1998 to the date of entry of judgment.
V. CONCLUSION
The Court DENIES Ericsson's Motion for Judgment as a Matter of Law. The Court GRANTS Ericsson's Motion for New Trial on the issue of damages, unless Harris agrees to a remitted damages award of $43,270,150.00. If Harris elects to accept the remittitur, the Court will enhance the damages in the amount of $1,000,000.00, award attorneys' fees in the amount of $1,034,930.30, and award prejudgment interest as discussed above. Within thirty days of the entry of this Order, Harris shall file a statement with the Court either accepting a remittitur of the damages to the amount of $43,270,150.00 or electing to proceed to a new trial. If the remittitur is accepted, Harris shall prepare a proposed form of judgment, including calculations of prejudgment interest. The Court anticipates that no further briefing will be filed.
SO ORDERED.